Caught between Northern Rock and a hard place: Finance 10 years on
It's ten years since the collapse of Northern Rock, the event that signalled the start of the UK's economic recession.
A decade later, those events are still raw and the next generation of savers have been left with a financial landscape that's dramatically different to the one that enabled their parents to earn, save and purchase property with relative ease.
So, ten years on, what lessons were learnt from the collapse of Northern Rock, and how has the financial market changed?
Today, the UK's economy is in recovery. Although the credit crunch is not yet a distant memory, the country is navigating its way through Brexit.
But the financial landscape we have here in 2017 is very different to that of ten years ago.
Interest rates are significantly lower, which means people can borrow more easily. However, the reasons they need extra money can often be attributed to the knock-on effects of the recession.
For instance, so many people lost their jobs at the height of the economic crisis that self-employment soared, contributing heavily to the creation of today's fast-emerging gig economy. While on the one hand this has secured employment for many, on the other it means their financial risk profiles have effectively increased, as these workers are not necessarily guaranteed pensions or are less able to secure mortgages.
Meanwhile, people who invest their money in financial products struggle to match the returns common in previous decades because low investment growth is the new normal in many cases. As a result, people could be ploughing their hard-earned salaries into products that will generate lower returns, leaving them worse off in retirement. Finding a sustainable rate of income through the retirement years may be equally challenging. Coupled with lower fund values, some may take more risks to achieve the pension they need.
How have people's savings been impacted?
It's not just older people who have had their savings impacted following the financial crisis. Low wage growth and increasing living costs have seen millennials faced with challenging financial circumstances. Many will be unable to get on the housing ladder until they reach middle age without considerable financial help from their parents.
Indeed, many are entering adulthood with more debts than any generation before, after the Conservative-Liberal Democrat coalition government increased university tuition fees from a cost of just over £3,000 a year to £9,000 a year in some cases. That's a debt of £27,000 compared to £9,000 for those a decade older. And with the jobs market left in tatters for a few years after the recession, getting a foot in the door to start repaying that has been extremely hard for many.
Figures show that over 16 million people across the UK have less than £100 saved in their bank account and millions would struggle to meet an unexpected bill for £300, meaning they are dicing with risk from one pay cheque to the next.
Risk is now the individual's problem
This is arguably the biggest change of all that's come out of the last decade; risk is now primarily the individual's issue rather than their bank or building society's.
It is now up to consumers themselves where they invest their money and it's always going to be in the back of their mind that whichever institution they entrust it to could go the same way as Northern Rock should the market shift, despite tougher regulation on capital requirements.
In addition, pension freedoms - which were introduced in 2015 - have placed more power and simultaneously investment and longevity risk with savers. After a lifetime of hard work, they need the assurance that they will be guaranteed a decent retirement income. That means they rely on financial advisers more than ever.
The nature of today's market means that more consumers would benefit from annuities to secure their income for retirement, so advisers need to be prepared to discuss these with their customers. At the same time, they need to recognise that they are now the ones that hold consumers' power and trust, but that could disappear all too quickly, as was the case for Northern Rock ten years ago this month.
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